The tendency of human nature to be swayed by self-interest rather than by duty

Introduction

Law firms are increasingly entrepreneurial, diversifying their offering through their own trust companies, investment managers and family offices.  The recent Court of Protection case, Irwin Mitchell Trust Corporation v. PW & Anor [2024] EWCOP 16, is a cautionary tale reminding us of the possibility of a conflict of interest, even where there has been a beauty parade of investment managers.

Facts of the case

Irwin Mitchell LLP is well respected in the personal injury area and does a lot of Court of Protection work. As a way of cross-selling, it has its own trust company, Irwin Mitchell Trust Corporation (the Trust Company) which acts as deputy under a Property and Financial Decisions Lasting Power of Attorney, and its own investment management company, Irwin Mitchell Asset Management Ltd (the Asset Manager), which invests the compensation payments. 

The Trust Company is acting in a fiduciary capacity and as such, is not allowed to make a profit, unless there is specific provision to do so, and is not allowed to be in a position where interest and duty conflict. This is the self-dealing rule.

In this case, PW caught viral encephalitis while in hospital which resulted in a significant cognitive impairment. With Irwin Mitchell LLP’s assistance, PW received compensation in respect of that injury of £1.85 million as well as periodical payments increasing to around £150,000 a year. 

The Trust Company was appointed as property and affairs deputy for PW.  The Trust Company appointed the Asset Manager to manage the investment of PW’s funds.

The Trust Company applied to the Court of Protection to obtain a statutory Will for her.  The Official Solicitor, who was litigation friend for PW, raised concerns about the Asset Manager being appointed to manage PW’s investments.  The issue was whether the appointment of the Asset Manager by the Trust Company breached the self-dealing rule.

The Court accepted that wealth management for serious personal injury cases is a specialism distinct from other financial planning, and that there is a limited pool of providers offering such specialist services.

For every case, there was a panel of three or four investment managers that the Trust Company would choose from.  If PW had a family member participating in the beauty parade, their view would be sought as whether the Asset Manager should be joined in the beauty parade; if they were unwilling, then the Asset Manager would not participate. 37% of clients of the Trust Company had assets invested with the Asset Manager.

The judgment

The Court of Protection held that, despite the steps taken to mitigate the risk of a conflict of interests, the appointment of the Asset Manager in this case was a breach of the self-dealing rule, as their appointment provided financial gain to the Irwin Mitchell group. There was insufficient evidence at this stage to decide whether the appointment of the Asset Manager should be ratified.

The Birketts view

With professional services firms being increasingly under financial pressure and looking to diversify and cross-sell, this is a reminder of the very real possibility of a conflict of interests, even where steps have been taken to mitigate that risk.